This April is the last tax season before the Tax Cuts and Jobs Act, which was signed into law Dec. 22, takes effect. The 1,101-page document which passed Congress with no Democratic support is being touted as the most significant tax code change in decades.
Bill sponsor and Houston-area U.S. Rep. Kevin Brady, R-The Woodlands, chairman of the House Committee on Ways and Means, said in a statement that the measure would be a boost to the economy.
“This legislation will deliver real relief to hardworking families in my district and across the country who will be able to keep more of the money they earn,” he said. “It will create more opportunities for workers to find that next new job, earn that long-overdue raise, and get ahead.”
But how much relief the bill brings is dependent upon various factors, including what people earn, how many children they have, and whether they use certain deductions.
Standard deductions increase
Most filers use the standard deductions, meaning they do not itemize their tax deductions. Standard deductions change year to year due to inflation and in 2018, for single taxpayers and married taxpayers filing separately, deductions increased 88 percent from $6,350 to $12,000.
For married couples filing jointly, standard deductions increased to $24,000 from $12,700 and for heads of households they increased from $9,350 to $18,000. The standard deduction is higher for taxpayers ages 65 or older or blind, and lower for those who can be claimed as a dependent, according to the IRS.
About 70 percent of taxpayers currently use the standard deduction, but with changes, that is expected to rise to nearly 94 percent, according to the Joint Explanatory Statement of the Committee of Conference.
This change, plus new tax rates for all filers, is why Marcus Dillon, president and founder of Dillon CPAs PLLC in Katy, said everyone in the area is affected in some way.
“What we hope is the people who [have simple returns]and can do their own taxes themselves can continue to do their taxes themselves,” he said.
His clientele tends to be in the highest tax bracket—37 percent of taxable income—and mostly consists of small businesses, business owners, and individuals with complex tax returns.
Property tax deduction
Heather Duffey and Kim Grissom of Duffey and Grissom CPAs PC in Katy, along with Dillon, argued the law’s most notable change for the community is the new state and local property tax deduction cap. It was set at $10,000 or $5,000 for married couples filing separately, according to the law, and is expected to affect 44 million tax returns.
“The cap is going to be significant at $10,000,” Grissom said. “A lot of Katy residents pay more than that in sales tax and property tax.”
Dillon said most of the phone calls he has received since the law’s passage have been about the property tax cap.
Other tax break changes
One increase was the child tax credit, or “kiddie tax,” from $1,000 to $2,000 per child, with a maximum refund of $1,400 per child. Each qualifying child must have a Social Security number and after Dec. 31, 2025, the change will phase out.
The credit was also made available to more people earning incomes between and $55,000-$400,000 annually, depending on their filing status.
“[The credit has] been refundable in the past, and most of our clients here have not been able to take advantage of that,” Grissom said of her clients that previously earned too much for the credit.
Her and Duffey’s clientele are predominantly individuals and married couples in the middle tax bracket, or 24 percent of taxable income.
Meanwhile, several smaller deductions were eliminated, suspended or reduced, which Dillon, Duffey and Grissom said was likely done to simplify the tax code. These included the moving expenses deduction except for some armed service members, the alimony deduction, the deduction for personal casualty and theft losses except in a presidentially declared disaster, and the mortgage deduction.
The casualty and theft losses deduction change took effect in 2018 and the mortgage deduction dropped from $1.1 million to $750,000 for any debt incurred after 2017. Homeowners may not claim a deduction for existing and new interest on home equity now through 2025, according to the Annenberg Public Policy Center’s FactCheck.org.
Tax breaks for student loan debt or tuition, charitable contributions and teachers’ out-of-pocket expenses remained intact, while the deduction for unreimbursed medical expenses now applies to costs exceeding 7.5 percent of adjusted gross income for all taxpayers, not just seniors, according to the law.
Until Jan. 1, 2026, individuals can also now deduct 20 percent of qualified business income from a partnership, S corporation, or sole proprietorship, as well as 20 percent of aggregate qualified real estate investment trust dividends, qualified cooperative dividends, and qualified publicly traded partnership income.
Another eliminated deduction was for business expenses for entertainment, while meal deductions were generally reduced to 50 percent. Dillon said nearly all businesses use these.
“[The law is] so new, and I think there will be continued clarification from the IRS on given aspects of it over the coming year,” Dillon said.